Proxy Season 2023: Support for Material Topics and Rejection of Controversy

The most notable trend in the recently concluded US proxy season was the renewed support for proposals grounded on materiality and the rejection of controversial topics that sought to steer companies away from their core mission. Well-established reporting related to climate change continues to gather investor support, while other resolutions – such as those seeking divestment from fossil fuels – failed to gather majority support. At the same time, investors overwhelmingly rejected demands for reporting related to politically-charged issues such as reproductive rights as their proponents failed to show a link with the company’s main business mission. These are the key takeaways from 2023 proxy season shareholder proposals:

Stable support for standardized and best-practice reporting

As of the end of May 2023, US shareholders filed 682 proposals to the agendas of annual general meetings (AGMs) and were on pace to beat the 2022 numbers. Climate-change related proposals, most of them requesting greenhouse gas emissions data, retained support at a rate similar to prior years. Examples of other successful reporting requests include:

• Carrier Global Corp, Papa John’s, Century Aluminum, and Spirit Realty Capital all agreed to set GHG reduction targets and report on progress.
• Kraft Heinz agreed to adopt deforestation-free sourcing policies.
• About a third of social resolutions addressing employee-related issues including health and safety, labor rights, and benefits ended in agreements between companies and proponents (as of May 1).

Overly prescriptive demands failed to pass

The highly prescriptive nature of some environmental and social investor demands coupled with the fact that many companies are already planning to address those requests contributed to the overall decrease in support for shareholder proposals in 2023. Resolutions failed when certain proponents pushed the company to adopt a particular target or pursue a certain investment strategy. Cases in point include:

• Proposals requesting financial institutions and insurance companies to phase out lending or underwriting on new fossil fuel projects filed at JPMorgan Chase, Chubb Limited, Hartford Financial Services, Morgan Stanley, and Travelers received single digit support.

• Only 28% of Bank of America shareholders supported a proposal requesting disclosure of climate transition plans.
• Around 90% of investors at Chevron and Exxon rejected proposals on the disclosure of Scope 3 emissions, a significant increase in opposition compared to the previous year.
• Just under 7% of Amazon investors supported a proposal requesting review of the company’s 401-K offerings to account for the long-term effects of climate change.

However, new resolutions addressing petrochemicals and plastics are capturing the interest of some shareholders. At Dow Inc., 30% of shareholders backed a request for an audited plastic report addressing how a reduction in virgin plastic demand would impact the company’s financial position. Phillips, Westlake, and ExxonMobil received similar proposals.

Investors sent a clear message against non-material proposals

A rise in the number of proposals filed on divisive topics including reproductive rights, race, and firearms didn’t pass the materiality test with investors. The most notable examples in 2023 were:

• 83.5% of Coca-Cola investors voted against a proposal filed by the Service Employees International Union (SEIU) requesting a report on the impact of Coca-Cola’s products and practices on “non-white stakeholders.”
• 86.9% of Coca-Cola investors rejected a resolution filed by progressive fund As You Sow demanding a study to determine how state laws on reproductive rights impacted the company; 83.9% of PepsiCo’s shareholders rejected a similar proposal.
• 89.7% of Mastercard shareholders voted against a resolution for tracking gun-related transactions with a special merchant code for firearms.
• Support for proposals requesting companies to conduct racial and civil rights equity audits—which have historically surfaced at financial institutions but are now being filed at technology, consumer discretionary, and other companies—fell from 33% to 23%. The highest level of support for such a proposal was seen at Travelers with almost 35% of votes

Overall, these results are an early indication that investors seek to prioritize material issues – topics with a direct impact on business sustainability and growth, such as cybersecurity for technology companies and wood sourcing for furniture firms. The most recent proxy season proved that investors will steer their companies away from topics that don’t pass the materiality test.

Be ready to engage with shareholders on anything

The increases in proposals filed suggest that no company is immune to the demands of its shareholders—and those asks are rapidly spanning into new territory. Companies must be ready to engage with their shareholders on a wider range of issues including sensitive and politicized topics.

Need some help preparing? Our proxy advisory team offers the expertise and experience to help managers confidently address any issue with their shareholders, respond to proposals, and assess investor support on various topics. Reach out to start a conversation and learn how a customized investor engagement plan can lead to more successful and productive discussions with your shareholders.